Because California is a “community property” state (in which property acquired during a marriage is presumed to be co-owned by both spouses), a widow or widower are held responsible for the debts on assets they co-owned with their spouse. In California, creditors only have one year to collect on a debt.
Your joint account may be garnished for that debt even if you did not owe that debt. Your account may be garnished whether or not you own it separately from your spouse. Creditors may not be able to garnish your account at all.
For example, retirement accounts, IRAs, both qualified and depending on state laws, and some estate plans. Those are generally exempt, although there's special rules for those. Life insurance, that's another exemption. Creditors in many circumstances can't reach assets.
Most joint bank or credit union accounts are held with “rights of survivorship.” This means that when one account owner dies, the money passes to the surviving owner, or equally to the rest of the owners if there are multiple people on the account.
Joint bank accounts
Couples may also have joint bank or building society accounts. If one dies, all the money will go to the surviving partner without the need for probate or letters of administration. The bank might need to see the death certificate in order to transfer the money to the other joint owner.
If you contact the bank before consulting an attorney, you risk account freezes, which could severely delay auto-payments and direct deposits and most importantly mortgage payments. You should call Social Security right away to tell them about the death of your loved one.
If the estate goes through probate
The tricky part of this process is how any outstanding debts that need to get paid will be settled. While the creditors can't claim the house itself, they can make claims in an amount that might require you to sell the house.
Some types of inheritance are protected from creditors, which may include retirement or life insurance funds. However, states CreditCards.com, collectors may be able to seize certain assets to repay your debts, including money that was left to you in a will.
Bank accounts solely for government benefits
Federal law ensures that creditors cannot touch certain federal benefits, such as Social Security funds and veterans' benefits. If you're receiving these benefits, they would be exempt from garnishment.
Yes. When you have a joint account, each account holder is responsible for the full amount of the balance. The credit card company can seek to collect the amount due from either account holder.
Creditors might be able to garnish a bank account (also referred to as "levying" the funds in a bank account) that you own jointly with someone else who isn't your spouse. A creditor can take money from your joint savings or checking account even if you don't owe the debt.
And in nine “community property” states, including California and Texas, spouses may be equally responsible for debts incurred during the marriage, including medical debt. Other states may have laws that hold spouses responsible for paying certain essential costs, like health care.
Family members or next of kin generally notify the bank when a client passes. It can also be someone who was appointed by a court to handle the deceased's financial affairs. There are also times when the bank learns of a client's passing through probate.
Let debt collectors know that your loved one has died
You can let them know. You can also talk with a lawyer. A lawyer can help you protect your money and property from debt collectors under federal and state exemption laws. You may qualify for free legal advice or representation.
Real property includes things like your home or land. Though creditors can legally seize real and personal property that isn't covered by an exemption, this isn't common because it can be costly for creditors. It's more common for creditors to use wage garnishment or a bank account levy.
However, once the three nationwide credit bureaus — Equifax, Experian and TransUnion — are notified someone has died, their credit reports are sealed and a death notice is placed on them. That notification can happen one of two ways — from the executor of the person's estate or from the Social Security Administration.
What States Prohibit Bank Garnishment? Bank garnishment is legal in all 50 states. However, four states prohibit wage garnishment for consumer debts. According to Debt.org, those states are Texas, South Carolina, Pennsylvania, and North Carolina.
401(k)s and IRAs are two common retirement accounts that apply for this benefit. Retirement accounts provide creditor protection because the money in these accounts is typically used for retirement expenses, not current debts. Therefore, creditors can't seize these assets to pay off debts.
An asset protection trust (APT) is a complex financial planning tool designed to protect your assets from creditors. APTs offer the strongest protection you can find from creditors, lawsuits, or judgments against your estate. These vehicles are structured as either "domestic" or "foreign" asset protection trusts.
If a person is a joint owner of a bank or building society account with the person who has died, then from the time of the death the joint holder automatically owns the money in the account.
An executor/administrator of an estate can only withdraw money from a deceased person's bank account if the account does not have a designated beneficiary or joint owner and is not being disposed of by the deceased person's trust.
If there is no surviving party entitled to the money in a joint bank account after the death of all account holders, the funds in the joint account may be considered part of the deceased account holder's estate.